26 September 2008

Global Innovation Outlook

This past Tuesday, I was in Atlanta for an IBM-sponsored "Deep Dive" to look at water issues.* I was one of about 20 people who participated. We came from all areas (finance, engineering, food processing, government, academic, etc.) and discussed the present and future challenges facing fresh water. These dives will take place worldwide.

I had a wonderful time offering my "aguanomic" perspective (institutions matter, raise prices, government dominates water, etc.) to people more accustomed to looking at ROI, pump efficiency, revenue per liter, etc.

In future posts, I will discuss a number of "open questions" we wrote down at the end of the meeting. In the future, there will be various reports: verbatim and summary. In the meantime, those of you who want to get a good overview should check out the GIO blog entry on this past event. The blog will be updated with other material, and I'll try to link/comment when it is.

Bottom Line: Comparative advantage means that you are relatively better at something than someone else. By definition, that also means that they are relatively better at the other thing(s). Comparative advantage makes gains from trade possible and profitable. We all profited by trading ideas in Atlanta.

* It was almost a coincidence that Atlanta was also in "drought," i.e., they got only 30 inches when 50 is normal. Read more here and here. Many people wonder why IBM sponsored the event. The selfish reason is that IBM uses these for business planning and lobbying clients; the selfless reason is that sees this as a good way to contribute. That's why GIO pushes out a lot of information.

4 comments:

Here's my job. I sell Water Conservation where we have one of the largest, fast flowing gravel aquifers in the world. See a map: http://www.spokanewater.org/aquifer/The municipality I work for has the senior water rights to the groundwater and the river, and we had record plus precipitation last year. The river ran at 36,000 CFS for two months! Even though we have plenty of water, we use too much. All the environmentalists, resource manangers, and purveyors agree, but not the average Spokanite. But this month, the City is proposing watering restrictions. I say "YaY" it's about time. I think we should raise our rates as well as have restrictions because our ratepayers waste water. Los Angelinos would cringe at the sight. Imagine using 972 gallons per day per capita. That's what we use in July through September, mostly for watering turf (Kentucky Bluegrass in a semi-arid montaine climate). Proponents of fescues, drought tolerant landscapes and xeriscapes are on the rise, but I have to bite my lip when people pooh pooh our pleas to save water saying "We have tons of water!", because they are actually right. But we should conserve it anyway. There, I had the last word!!

Jackie -- and you're right that conservation is a good idea. The best way to promote it -- IMO -- is to raise prices. Higher prices will more people to use less and higher revenue can be used to upgrade infrastructure -- especially to guard against drought. "Extra" water can either be sold elsewhere (more $) or left to flow into the environment, which improves quality of life.

I think the problem with water is that it is not a very linear, nor elastic pricing function. In other words, its cheap, its cheap, its cheap, its cheap.....its unavailable. Pricing signals will help, but only if they are large enough to change behavior. In this case, I struggle to see how that will happen.

I was also at the same Innovation Outlook discussion as David, and we heard about how South Africa deals with the thorny issue of water as a fundamental human right versus water pricing. In South Africa - an appropriate amount of water to meet fundamental needs (a human right) is allocated to each individual. Those requireing more have to pay more, on an escalating scale.

This seems reasonable to me, but I haven't explored whether this is a system that is working.